I think there are two reasons for the existence of corporations, and only one is valid.
The first and main one, is to raise money for enterprise, and give rewards for the investors. How could a railroad be built, unless there was a pool of investors’ funds to accomplish this? A corporation’s selling stocks to start a business, utility, or any large enterprise, allows it to get started by collecting investors’ money. The investors are rewarded by seeing their stock prices go up if the venture is successful, and also be further rewarded by dividends. This is as it should be.
Take a chance, is what buying stocks is all about. Take a chance that the stock will go up, and take a chance that the stock will pay a dividend. Many people have guessed correctly, and many have not. That’s what life is about. Just about everything we do is a risk, from the time we get out of bed in the morning!
The second reason for a corporation, and the reason I despise, is simply to avoid liability. How many doctors and lawyers form corporations so that if they get sued, they will not be personally responsible? How many corporations, both large and small, have bitten the dust, and taken their creditors with them? A mythical example if you please: Joe Blow has an idea for a business, and he convinces others to invest in his idea by buying his stock. His idea is far better than his ability to carry it out. He runs up lots of bills, and eventually fails, with his stock going to zero. The investors have lost the dough they put into his stock. What about the people who furnished Joe Blow his raw materials or merchandise for his business? They will never get a dime, and I think that is an outrage.
Owning a stock, means that you own a small part of the business the stock represents. If you own GM, McDonalds, or Joe Blow’s store, you actually own a part of that business. Sure, your investment may go to zero if the business fails, but since you own a part of that business, why shouldn’t you be responsible for the liabilities that business has created? You own part of it, and you should be held responsible for the bills it has run up during the time of its being in business. Seems logical to me.
I wonder how many people would be buying stocks if they were going to be held responsible, for not just the stock’s price, but the liabilities of the business if it failed? How many doctors would start corporations for their practice, if their entire net worth were at risk? Would they practice a bit more carefully? This is something I thought of many years ago, and have never written about, but it does make sense…at least to me. Owners of corporations, no matter how large or small their ownership ownership, and even single corporate entrepreneurs, should not be able to avoid responsibility for their actions, or the actions of a CEO or board of directors…in my opinion.
Far too often, people are injured or severely damaged, and are unable to get satisfaction, because the perpetrator of the injury is a corporation, which conveniently went bankrupt. The owners of that corporation, the stockholders, have totally avoided responsibility, other than the value of their stock holdings. Why shouldn’t every owner of a stock in any corporation, no matter how large or small, be held responsible for that corporation’s actions? How many large corporate CEO’s bail out with huge ’golden parachute’ windfalls after literally destroying that corporation, and leaving that corporation’s suppliers destitute? I say that not only should a stockholder’s stock value, but all losses and liabilities of a corporation be spread out to the stockholders as well. I know, this will never fly, but it makes sense to me.